Ian Anderson, president of Kinder Morgan Canada Ltd., must be laughing all the way to check on his stock options since the Trudeau government offered to use public funds to bail out the company’s stalled Trans Mountain Pipeline Expansion project.

Anderson earned almost $2.9 million last year in salary, stock awards and other compensation, according to company documents — and that was only from June through December.

Kinder Morgan Canada’s vice-president, David Safari, collected $1.95 million in stock awards and other compensation during the same seven-month period.

But that’s latte money compared to the hundreds of millions of dollars in annual dividend earnings of Texas billionaire Richard Kinder, who was the CEO of parent company Kinder Morgan Inc. until 2015.

Wednesday night, in its quarterly financial report, Kinder Morgan Inc. announced results so strong it beat its own rosy forecast for the first segment of 2018.

With US$80 billion in assets, cash is flowing and North America’s largest energy infrastructure company — which owns 70 per cent of Kinder Morgan Canada — is back in growth mode.

“Kinder Morgan Inc. Starts 2018 Off with a Bang,” read Thursday’s Yahoo Finance headline.

Yet Canadian taxpayers will be the ones to feel the biggest whomp if Prime Minister Justin Trudeau and Alberta Premier Rachel Notley follow through on new promises to back the project financially, with Trudeau calling the Kinder Morgan pipeline a “vital strategic interest” for the country.

Notley even suggested earlier this week that her government might buy the pipeline outright if Kinder Morgan opts to abandon the $7.4 billion project once the corporation’s May 31 deadline for resolution of the fractious inter-provincial dispute has passed.

Oh happy days for Kinder Morgan’s millionaires.

Ian Anderson, president of Kinder Morgan Canada, earned almost $2.9 million between June and December alone. That’s latte money compared to the hundreds of millions in annual dividend earnings of Texas billionaire Richard Kinder. https://t.co/HaZQM4rVPF

— DeSmog Canada (@DeSmogCanada) April 20, 2018

Aaron Wudrick, federal director of the Canadian Taxpayers Federation, said it is a “terrible” idea for Canadians to “bail out — apologies, ‘invest in’ ” — the profitable Houston-based corporation that owns 137,000 kilometres of pipelines and 152 terminals.

“This is not appropriate,” Wudrick told DeSmog Canada. “There is absolutely no reason public money should be going to these companies.”

Which companies? Well, Honda, for one. Last year, the Japanese conglomerate received $84 million in taxpayer funding.

And Bombardier, the world’s leading manufacturer of planes and trains, has been diving deeply into the public trough for years, even though the Bombardier family that controls the company is among Canada’s richest and the company’s top executives, already earning millions a year, were offered a hefty pay hike after a $1 billion infusion of public money last year.

“This is very offensive to most Canadians,” Wudrick said. “If people in the private sector are going to make a lot of money, it’s their own money and their own business and good for them. But taxpayers should not be funding the salaries of these executives.”

The high salaries of Kinder Morgan executives are “just one illustration” of why the company should not receive any public money, said Wudrick, who supports the pipeline while opposing a taxpayer bailout.

He believes that Trudeau and Notley have made a strategic mistake by saying how desperate they are to build a pipeline to carry product from Alberta’s oilsands to tankers on B.C.’s coast.

“Kinder Morgan now knows that, and I think frankly they’re going to drive a hard bargain. They essentially have the premier of Alberta and the prime minister of Canada by the throat and they can say ‘unless you pay us x dollars, we’re going to back out.’ ”

“That’s a very bad negotiating position for government.”

So far it looks like the big winner of the inter-provincial brawl is not B.C. or Alberta but Kinder Morgan, which appears to be emboldened by the discord.

Duff Conacher, a founder of the civic organization Democracy Watch, called Kinder Morgan’s new May 31 deadline for resolving the conflict “an attempt at extorting a step forward” that should be rejected.

“If the pipeline is such a great idea and it’s profitable, and if Kinder Morgan decides they are not going to build it, based on their completely artificial May 31 deadline, then presumably some other company will step up and build it,” Conacher pointed out in an interview.

“Why should the government jump into the market on behalf of one company?”

Those advocating for an infusion of public money into the Kinder Morgan pipeline claim the project is a guaranteed moneymaker, even though oil shipments from the existing pipeline to the lucrative Asian market have dwindled and most tankers leaving the Port of Vancouver now head south to California.

If twinning the pipeline does make sound financial sense, Wudrick also said another company will come forward to complete the project, which will triple the existing pipeline’s capacity and involve construction of 12 new pump stations, 19 new storage tanks and three new marine berths located at the Westridge Marine Terminal in the Burrard Inlet near Vancouver.

Federal officials said Thursday that the offer of financial assistance would extend to other companies if Kinder Morgan decides to walk away.

Conacher, a lawyer, academic and internationally recognized leader in the areas of democratic reform and government accountability, said it is up to the courts to decide what is in the national interest, based on the law and evidence.

“What is in the national interest is a question of law. And the government should not be taking steps to help a company do something that the government says is in the national interest until the Supreme Court of Canada has defined what that means.”

He said building the pipeline is unquestionably in the short-term interests of Alberta.

“But I don’t think the national interest is based on the short-term interest of one party in one province.”

The B.C. government announced this week that it will file its reference case on the ability of the province to regulate the transport of diluted bitumen in the Court of Appeal by April 30th, putting the much-debated constitutional question to the test.

The appropriate timeline for a final decision about whether or not to proceed with the Kinder Morgan pipeline should be the timing of a legal ruling, Conacher said, and not Kinder Morgan’s self-serving corporate deadline.

“If Kinder Morgan doesn’t like it then they can leave.”

Wudrick said other foreign corporations are watching the unfolding pipeline drama closely.

Canada needs to be a country that is welcoming to business, he said, adding that it is a very different matter and a “very expensive proposition” to subsidize businesses with public money.

“It will only attract the wrong kinds of business, the businesses that are interested in sucking money out of government rather than trying to make money in the marketplace. The fact that both the premier of Alberta and the prime minister have been so quick to offer of up taxpayers’ money sends a very dangerous signal.”

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This article originally appeared on Dogwoodbc.ca. 

It’s a rare dose of honesty from a company with a history of bending the truth. Kinder Morgan filed a final prospectus last week with securities regulators, setting the stage for a last-ditch attempt to raise enough cash to build its Trans Mountain expansion project.

Now all the Texas pipeline barons can hope is that investors don’t read the fine print.

The company is essentially trying to crowdfund $1.75 billion through an initial public offering. Kinder Morgan executive Ian Anderson sounded confident in a press release announcing the IPO: “Our approvals are in hand and we are now ready to commence construction activities this fall,” he said.

But the approvals are not in hand, and a mandatory risk analysis accompanying the share offering makes clear how difficult it will be to start construction. Provincial politics, lawsuits, blockades by First Nations – any one of these could kill the Trans Mountain pipeline project, the company admits.

Even if Ottawa sends in the army to get the thing built, all sorts of events over the coming decades could leave investors stranded: oil spills, Aboriginal title claims, shifting market conditions, earthquakes and yes, global warming.

Publicly, Kinder Morgan’s top Canadian executive has questioned the reality of climate change. But in these disclosure documents, the company admits rising sea levels could actually disable its Burnaby oil tanker terminal.

“An investment in Restricted Voting Shares,” the prospectus soberly declares, “should only be made by persons who can afford a significant or total loss of their investment.”

Kinder Morgan’s lawyers identify five major pitfalls for shareholders, any of which could wipe out their hopes of a return.

1. “The development and construction of the Trans Mountain Expansion Project and other major expansion projects, are subject to significant risk and, should any number of risks arise, such projects may be inhibited, delayed or stopped altogether.”

This is where the prospectus contradicts Kinder Morgan’s Ian Anderson, who claimed “our approvals are in hand”. According to the document, risks to the Trans Mountain expansion include “inabilities to overcome challenges posed by or related to regulatory approvals by federal, provincial or municipal governments, difficulty in obtaining, or inability to, obtain permits (including those that are required prior to construction such as the permits required under the Species at Risk Act), Land Agreements, public opposition, blockades, legal and regulatory proceedings (including judicial reviews, injunctions, detailed route hearings and land acquisition processes), delays to ancillary projects that are required for the Trans Mountain Expansion Project (including power lines and power supply), increased costs and/or cost overruns, inclement weather or significant weather-related events (including storms and rising sea levels (potentially resulting from climate change) impacting the Business’ marine terminals) and other issues.”

Quite a paragraph.

The prospectus continues: “To the extent the Business is not able to acquire land rights through negotiated agreements for the sections of the Trans Mountain Expansion Project that require new land rights, the Business will need to seek right of entry orders from the NEB, which could result in delays and increased cost.”

Translation: People may fight us when we show up to expropriate their homes.

The company also acknowledges the 19 separate lawsuits it faces, any one of which could halt the project. “In addition to the judicial reviews of the NEB recommendation report and Governor in Council’s order, parties have also commenced judicial review proceedings at the Supreme Court of British Columbia seeking to quash the Environmental Assessment Certificate that was issued by the BC Environmental Assessment Office. In the event that an applicant for judicial review is successful, among other things, the Environmental Assessment Certificate may be quashed, provincial permits may be revoked […] or the Trans Mountain Expansion Project may be stopped altogether.”

1. “The debt levels of the Business, including increases in such debt levels, could have significant negative consequences for the Business.”

This is an issue flagged by investment blog The Motley Fool, which calls this IPO “a dog with fleas” and warns readers “under no circumstances should you buy any shares.”

Will Ashworth writes: “Take a look at the balance sheet for Kinder Morgan’s Canadian business, and you’ll see that it’s got $159 million in cash and $1.4 billion in debt; that’s net debt of $1.2 billion. Assuming the over-allotment is exercised, the IPO will raise $2 billion, leaving Kinder Morgan with $800 million in net cash and $6.6 billion short of what its projected needs are to complete the Trans Mountain pipeline expansion.”

Sure enough, the prospectus says more cash infusions will be required if the company actually decides to build: “The Business is expected to incur substantial additional indebtedness to fund capital expenditure requirements related to the Trans Mountain Expansion Project.”

#KinderMorgan Warns #TransMountain Investors Pipeline May Never Be Built https://t.co/AWTkf7lKQX #IPO via @dogwoodbc @kainagata #bcpoli

— DeSmog Canada (@DeSmogCanada) May 29, 2017

Company-wide, Kinder Morgan is groaning under $35.1 billion in debt. With its credit downgraded as a result, the pipeline giant admits that rising interest rates could pose a problem: “The growth plans for the Business, including the Trans Mountain Expansion Project, require access to significant amounts of external capital. Limitations on the ability of the Company or the Business to access external financing sources could impair the ability of the Business to complete these significant projects, including the Trans Mountain Expansion Project.”

1. “The failure by the Business to resolve issues relating to Aboriginal rights and title and the Crown’s duty to consult could have a material adverse effect on the Trans Mountain Expansion Project.”

This is an important one. Here’s what the company’s own lawyers say: “In some cases, respecting Aboriginal rights may mean regulatory approval is denied or the conditions in the approval make a project economically challenging or not feasible.”

They’re also worried about First Nations along the route proving title to the land, like the Tsilhqot’in did in 2014. That could force Kinder Morgan to dig up and reroute the existing pipeline, not to mention the expansion.

Even with First Nations leaders that have tentatively signed impact benefit agreements, the prospectus anticipates Kinder Morgan could find itself back in court: “Future disagreements with Aboriginal groups could result in legal challenges by Aboriginal groups alleging breach of contract.”

1. “Changes in government, loss of government support, public opposition and the concerns of special interest groups and non-governmental organizations may expose the Business to higher costs, delays or even project cancellations.”

The part about “changes in government” seems particularly relevant now that the Green Party holds the balance of power in the provincial legislature. The Greens and the NDP have sworn to fight the project with all legislative tools available. Kinder Morgan acknowledges in this document that the province does indeed have the power to stop the pipeline.

Construction of the Trans Mountain expansion could also be abandoned “due to increasing pressure on governments and regulators by special interest groups including Aboriginal groups, landowners, environmental interest groups (including those opposed to oil sands and other oil and gas production operations) and other non-governmental organizations, blockades, legal or regulatory actions or challenges.”

In addition, “market events specific to Kinder Morgan, the Company or the Business could result in the deterioration of Kinder Morgan’s reputation with key stakeholders,” the prospectus warns.

“In particular, Kinder Morgan’s reputation could be impacted by negative publicity related to pipeline incidents, unpopular expansion plans or new projects and due to opposition from organizations opposed to energy, oil sands and pipeline development and particularly with shipment of production from oil sands regions that are considered to increase GHG emissions and contribute to climate change.”

On the bright side, if climate activists are successful, perhaps Kinder Morgan can salvage its marine terminal.

1. “The Business is subject to significant operational risks, including those relating to the breakdown or failure of equipment, pipelines and facilities; releases and spills; operational disruptions or service interruptions; and catastrophic events.”

This last section is pretty scary. It confirms everything intervenors tried to raise during the biased NEB review (that Prime Minister Trudeau and Premier Clark both rubber-stamped).

“There are a variety of hazards and operating risks inherent in the transportation and storage of crude oil, such as: leaks; releases; the breakdown or failure of equipment, pipelines and facilities (including as a result of internal or external corrosion, cracking, third party damage, material defects, operator error or outside forces); the compromise of information and control systems; spills at terminals and hubs; adverse sea conditions (including storms and rising sea levels) and releases or spills from vessels loaded at the Business’ marine terminals; and catastrophic events including but not limited to natural disasters, fires, floods, explosions, earthquakes, acts of terrorists and saboteurs, cyber security breaches, and other similar events, many of which are beyond the control of the Company, the Business and Kinder Morgan.”

“Some climatic models indicate that global warming may result in rising sea levels, increased intensity of weather, and increased frequency of extreme precipitation and flooding. To the extent these phenomena occur, they could damage physical assets, especially operations located near rivers, and facilities situated in rain susceptible regions. In addition, the Business may experience increased insurance premiums and deductibles, or a decrease in available coverage, for its assets in areas subject to severe weather.”

“The occurrence or continuance of any of the risks set out above could result in serious injury and loss of human life, significant damage to property and natural resources, environmental pollution, impairment or suspension of operations, fines or other regulatory penalties, and revocation of regulatory approvals or imposition of new requirements, any of which also could result in substantial financial losses.”

“For pipeline and storage assets located near populated areas, including residential areas, commercial business centers, industrial sites and other public gathering areas, the level of damage resulting from these risks may be greater. In addition, the consequences of any operational incident (including as a result of adverse sea conditions) at the Business’ marine terminals or involving a vessel receiving products from one of its marine terminals, may be even more significant as a result of the complexities involved in addressing leaks and releases occurring in the ocean or along coastlines and/or the repair of the Business’ marine terminals.”

In other words, there is no technology to clean up diluted bitumen once it spills into seawater. Kinder Morgan makes clear that it bears no responsibility for the oil tankers once they leave the dock at Westridge – but warns that a tanker spill could still hurt the company’s reputation, halt its operations and wipe out its investors’ profits.

The company also admits that it may not have enough insurance to cover a serious incident: “The Business is covered by an insurance program which is renewed annually and has $1 billion worth of financial capacity for spill events in accordance with the Pipeline Safety Act. However, the Business’ insurance program may not cover all operational risks and costs and/or may not provide sufficient coverage in the event a claim is made against the Business.”

In 2010 an Enbridge pipeline carrying diluted bitumen burst into the Kalamazoo River in Michigan. Cleanup costs sailed well north of $1 billion – a fact that can’t have escaped Kinder Morgan.

Finally, the pipeline company comes close to acknowledging that its entire business model may be on the way out. A piece of infrastructure like the new Trans Mountain pipeline is supposed to last for at least 40 years. But the company doesn’t sound confident that the world will still be burning heavy oil in the late 2050s.

“Changes in the overall demand for hydrocarbons, the regulatory environment or applicable governmental policies (including in relation to climate change or other environmental concerns) may have a negative impact on the supply of crude oil and other products. In recent years, a number of initiatives and regulatory changes relating to reducing GHG emissions have been undertaken by federal, provincial, state and municipal governments and oil and gas industry participants (including, for example, the decarbonization targets set forth in the Paris Agreement). In addition, emerging technologies and public opinion has resulted in an increased demand for energy provided from renewable energy sources rather than fossil fuels. These factors could not only result in increased costs for producers of hydrocarbons but also an overall decrease in the global demand for hydrocarbons.”

What’s the point?

So why go through this whole song and dance to raise cash for a project that even Kinder Morgan agrees is a long shot? The answer may lie in an investor call held just before the B.C. election.

Financial blogger David Alton Clark asked Kinder Morgan reps what would happen if the project were abandoned. “It would certainly be a major setback, but with ground not broken yet, KMI could direct most of the cash we would use for this project to other projects,” Clark reports them saying.

“The investor relations team indicated only $600 million in sunk costs on TMEP presently,” Clark writes. So, how much cash will Kinder Morgan Canada net if next week’s IPO goes to plan? Somewhere between $500 million and $750 million.

I’ll give the last word to Grand Chief Stewart Phillip.

“This company was founded from the ashes and rubble of Enron, a company synonymous with scandal, corporate fraud and bankruptcy,” said the President of the Union of B.C. Indian Chiefs in a news release.

“Today these same reckless cowboys are trying to convince gullible investors to plow cash into a pipeline they know will never be built.”

Image: Burnaby Mountain protest. Photo: Mark Klotz via Flickr

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Kinder Morgan Canada’s president Ian Anderson may have misled potential investors in a statement released Thursday that claimed “execution planning is complete, our approvals are in hand” for the Trans Mountain pipeline, according to Ian Stephen, resident of Chilliwack B.C. and campaign director at the Waterwealth Project.

“We are now ready to commence construction activities this fall,” Anderson told the public this week during Kinder Morgan Canada’s $1.75 billion initial public offering — one of the largest offerings in Canada’s history — expect to close May 31.

But according to Stephen, Kinder Morgan is “misleading potential investors,” because the company has yet to receive National Energy Board approval for the Trans Mountain pipeline route through Chilliwack.

The company’s current plan routes the pipeline directly over the city’s aquifer, a source of drinking water for over 90,000 residents in Chilliwack and Yarrow.

“The key thing for me, and for most people in Chilliwack, is the aquifer. It’s our sole source of drinking water for one of the fastest growing communities in B.C.,” Stephen told DeSmog Canada.

Stephen said the original Trans Mountain pipeline was built in 1953, long before detailed knowledge of the aquifer was available. But now Kinder Morgan wants to add a second pipeline along the same corridor that falls within the city’s groundwater protected zone, Stephens said.

“But there are other issues too — the fact that the pipeline crosses two school yards and goes through dense residential neighbourhoods,” he said.

Majority of Statements of Opposition Filed with NEB from Chilliwack

More than 400 statements of opposition have been filed with the National Energy Board in response to the most recent Trans Mountain filing.

A total of 188 of those statements came from Chilliwack, including those from local residents, City Hall, the Chilliwack Chamber of Commerce and local First Nations.

“A high proportion of those letters of opposition came from Chilliwack,” Jason Lum, Chilliwack city councillor, told DeSmog Canada.

“People are paying close attention to this issue,” he said, adding alongside the city’s submission to the NEB, he submitted a personal letter requesting Trans Mountain consider alternate routes that don’t threaten the city’s aquifer as well as sensitive ecosystems such as the Brown Creek wetlands.

Lum added the pipeline route, as currently proposed, runs atop the water systems for both Chilliwack and Yarrow.

“What I hear predominantly from people, even from people staunchly supportive of the pipeline, is that it’s not a good idea to run a pipeline through a drinking water source.”

For Stephen, the large amount of statements of opposition from the community in Chilliwack, which Trans Mountain has yet to formally respond to, conflicts with Ian Anderson’s statement that “approvals are in hand.”

“The pipeline route has not been approved by the National Energy Board,” Stephen said. “And I’m quite confident it won’t be in Chilliwack.”

Chilliwack Residents Among Most Vocal Opponents of Trans Mountain

Residents of Chilliwack featured prominently in a November 2016 report released by a Trudeau-appointed ministerial panel tasked with conducting public hearings along the Trans Mountain pipeline route.

“I do not understand how the pipeline could have been allowed to be built across the aquifer in the first place,” Chilliwack resident Cary Stephen wrote in a submission to the panel.

“Perhaps they simply did not have knowledge of the aquifer in the 1950s. Perhaps they chose to believe that pipelines would never spill. In any case, it would be unthinkable to allow that mistake to be repeated now.”

The panel noted residents of Chilliwack and Abbotsford raised significant complaints about Trans Mountain’s performance managing the existing pipeline and preparation for the proposed expansion.

“Where ranchers from the Interior had praised Trans Mountain staff for being respectful and responsive, farmers in the Fraser Valley — many of whom said they support the pipeline in principle — posted a long list of complaints about the pipeline and the company’s general attitude,” the panel wrote.

The Collaborate Group of Landowners Affected by Pipelines (CGLAP) told the panel the current Trans Mountain pipeline “creates access and drainage problems, that it is frequently outside the legal right-of-way and is not always buried to the designated 60-centimetre depth, which makes it a hazard to cross with farm equipment.”

Despite these ongoing problems with the historic pipeline, in its efforts to secure a new pipeline route, Trans Mountain has “threatened and bullied” landowners, applying pressure to sign one-time bonuses in exchange for route access, according to Delwen Stander CGLAP legal counsel.

Trans Mountain Failed to Follow Procedure, May Face Delays

In addition to charged relationships with local residents in Chilliwack, Trans Mountain also failed to follow its own schedule for public comment periods, Stephen said.

Following submissions to the National Energy Board, Trans Mountain is legally required to make information available to the public as well as post schedules for public comment periods.

“Here in Chilliwack they were handing out these big full-page, colour flyers, delivered door to door just before the detailed route process and it said that other route locations are no longer under consideration,” Stephen said.

“People got the impression from that flyer the route is set and can’t be changed. That’s simply not true.”

“It’s aggravating that people would be misled like that just before a regulatory process starts up.”

Compounding that issue, Stephen said, Trans Mountain filed a schedule for public comment periods with the NEB but then failed to follow that schedule.

“So people may have filed late thinking they had more time than they did, or they thought they missed the deadline.”

Waterwealth filed a motion with the National Energy Board asking them to require a correction from Trans Mountain.

Depending on how the board rules, the period for public comment may reopen after new notices are published between May 29 and June 6, Stephen said.

“I expect the NEB will rule on that today, before the weekend,” he said.

Image: Mychaylo Prystupa/Vancouver Observer

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Elections B.C. has been asked to investigate political contributions made to the BC Liberals by high-ranking Kinder Morgan staff, including president Ian Anderson.

The democracy advocacy group Dogwood submitted a formal complaint to Elections B.C. this week after discovering a series of political donations from individuals connected to Kinder Morgan’s Trans Mountain pipeline and tanker project that received provincial approval in January 2017.

The complaint comes on the heels of a bombshell investigation by the Globe and Mail that revealed corporate lobbyists were illegally reimbursed for contributions made to the B.C. Liberals.

Donations from Kinder Morgan staff to the BC Liberals include:

• Ian Anderson, President, Kinder Morgan Canada: $7,300
• Gavin Dew, Stakeholder Engagement Specialist: $13,120
• Lexa Hobenshield, External Relations Manager: $3,725
• Stephanie Snider, consulting lobbyist: $1,000

“If Kinder Morgan reimbursed any of its staff or lobbyists for event tickets, tables at fundraisers or other political contributions, they broke the law,” Kai Nagata, communications director for Dogwood, said in a press release.

B.C. has long been criticized for having some of the weakest political donation rules in Canada. There are no restrictions on corporate, union or foreign donations and there are no limits on what individuals can contribute.

It is explicitly illegal, however, to donate on behalf of or conceal the identity of another individual or entity.

“I think the people that have been tuned into what’s going on have looked at the B.C. political donation system with horror for many years but it does appear that current government has really elevated this style of fundraising to an art form,” Nagata told DeSmog Canada.

“The big difference we’ve seen in the last week is the realization that in their greed these players have found a way to break one of the few rules we do have which is around “straw donors.’ ”

The B.C. Liberals raised $12 million in 2016, more than any other ruling provincial party in Canada and two-thirds as much as the federal Liberal Party, according to the Globe investigation.

Nagata said the massive amounts of corporate and foreign cash flowing into B.C. raise significant concerns about decision-making in the province.

“The fundamental question is whether politicians are governing in the public’s interest and the scale of infiltration of foreign and corporate money raises serious questions about whether that is the case.”

Dogwood calculates that prior to the approval of the Kinder Morgan Trans Mountain pipeline project, the BC Liberals received $771,168 in donations from project supporters including Kinder Morgan, the Canadian Association of Petroleum Producers, the Canadian Energy Pipeline Association and oilsands producers. The same group donated $51,210 to the BC NDP.

Political Donations By Top #KinderMorgan Staff Draw Call for ElectionsBC Investigation https://t.co/EKxy6xJvkR @dogwoodbc @kainagata #bcpoli pic.twitter.com/zMINcctiqp

— DeSmog Canada (@DeSmogCanada) March 10, 2017

A recent report from the Canadian Centre for Policy Alternatives and the Corporate Mapping Project found the B.C. government has been lobbied more than 22,000 times by the fossil fuel industry since 2010 and received $5.2 million in industry political donations between 2008 and 2015, 92 per cent of which went to the BC Liberals.

“Each of these examples highlights how politicians have turned this lack of laws and regulations to their advantage politically,” Nagata said.

Despite numerous calls to modernize B.C.’s political donation system, no changes have been made under the BC Liberals.

“People are starting to wake up and realize every decision this government has made, and contracts they’ve given out and billions in tax breaks they’ve awarded to donor companies — all of that is now in question.”

Andrew Weaver, leader of the BC Green party, said B.C. is running a “pay to play” system that prioritizes big donors.

“The fact that we have so much money going from so few fossil fuel companies to both parties — mostly the BC Liberals but also to the BC NDP — is part of the reason we have lost so many opportunities in B.C.,” Weaver told DeSmog Canada.

“I was the only MLA who took the time to be an intervenor in the Kinder Morgan Trans Mountain hearings,” Weaver said. “The BC Liberals put out their five conditions for the project but never even outlined what it would take to meet those conditions.”

“B.C. politics is sick to the core because of this pay to play, because of lobbyists and corporate influence. People are being left behind.”

The BC Green party does not accept union and corporate donations.

“The ballot question this election is about trust: who do you elect to represent the people?”

“That’s a question for people who can vote: unions don’t vote and corporations don’t vote.”

Elections B.C. did not respond to a request for comment in time for publication.

Image: Christy Clark annouces B.C.'s approval of the Kinder Morgan Trans Mountain pipeline. Photo: Province of B.C. via Flickr

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Since DeSmog Canada broke the story two weeks ago that Kinder Morgan publicly released its emergency oil spill plans for the Trans Mountain pipeline in Washington State while withholding or severely redacting the exact same plans in B.C., there's been a firestorm of activity on the topic.

The story has now been covered by the Globe and Mail, the CBC and the Canadian Press, the issue was raised in the House of Commons this week and the president of Kinder Morgan and the chair of the National Energy Board (NEB) have been forced to respond.

Kinder Morgan and the NEB angered the B.C. government in January after ruling the company could keep spill response plans for the proposed oilsands pipeline secret due to "security concerns."

This week Kinder Morgan president Ian Anderson defended the company’s actions, saying the NEB did not demand disclosure of the plans.

“We in no way want to have this perceived lack of transparency around our emergency response plans as any indication of us wanting to hide anything or keep anything a secret,” Anderson said.

“There are very real security concerns that we have with respect to posting our full and complete plans where critical valves and critical access points to the system are delineated.”

Anderson elaborated that requirements for disclosure are different in Washington State.

In January the NEB ruled Kinder Morgan was not obligated to provide the plans despite multiple requests from the province of B.C., an intervenor in the federal Trans Mountain pipeline review process.

In a motion to the federal regulator, the province called Kinder Morgan’s redactions “excessive, unjustified and prohibitive.” B.C. added the withheld information “thwarts” their review of the pipeline expansion project and “precludes a thorough understanding of Trans Mountain’s [emergency management plan] by the Board and all intervenors.”

The release of the plans in Washington “renders inexplicable” Kinder Morgan’s insistence the information remain secret north of the border, B.C. argued. The fact emergency information is available in the U.S. “calls into serious question the legitimacy of Trans Mountain’s claim that what is presumably almost identical information ought…not to be disclosed,” the province told the NEB.

Victoria MP Murray Rankin raised the issue in the House of Commons on Feb. 23, saying:

"Kinder Morgan is allowed to keep its plans for oil-spill recovery secret from the people of Victoria and from all British Columbians — the very kind of plans that are routinely available across the border, in Washington state. This deplorable secrecy does no favour to the resource industry which depends upon social licence from first nations and from communities small and large trampled by a government that allows our resources to be sold at any price."

A spokesperson with the NEB said the federal regulator is considering making public emergency response plans mandatory for energy companies operating existing pipelines, the Canadian Press reports.

“Our chairman is not very happy that there’s a lack of transparency around these emergency response plans,” Darin Barter said. “Canadians deserve to have that information. There’s a public will for that information. Industry needs to find a way to make that information public.”

Barter added the NEB is not pushing for a legislative change around emergency plan disclosure requirements, but is seeking greater transparency from companies.*

* Correction February 25, 2015: This article has been corrected to show the NEB is not seeking a change in legislation but rather greater transparency from companies.

Image Credit: Trans Mountain

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Kinder Morgan, the Texas-based multinational that owns and operates the Trans Mountain Pipeline System, claims Trans Mountain is a significant contributor to federal and provincial income tax revenues. The company is relying on this as proof it deserves public licence to triple its pipeline capacity in Western Canada.

Pouring tax revenues into Canada is not the story Kinder Morgan tells its U.S.-based shareholders. Promoting Trans Mountain south of the border, Kinder Morgan boasts of tax refunds — two in the past five years. From 2009 to 2013, Trans Mountain's combined federal and provincial Canadian corporate tax contribution averaged just $1.5 million per year.

How could this be? The answer lies in complexities of U.S. corporate tax regulation which I will do my best to explain here.

First, a bit of history about how Kinder Morgan came into being.

Kinder Morgan began as a publicly traded Enron tax shelter in 1992 called Enron Liquids Pipeline, L.P. (see page 62). Publicly traded limited partnerships in the U.S. are called Master Limited Partnerships (MLPs). Ownership shares are units. MLPs are treated as a partnership for tax purposes and none of the income is subject to federal income tax. They combine the tax advantages of a partnership with the liquidity benefits of publicly traded stocks.

The Enron MLP held the energy giant's liquid pipeline assets as well as some gas processing and coal transfer and storage facilities. The general partner, Enron Liquids Pipeline Co., was the operator.

Richard Kinder, Kinder Morgan's current chair and CEO, was instrumental in setting up the arrangement. When Enron Liquids Pipeline was established, he was a member of the Enron board of directors, its president and chief operating officer (COO), and became the general partner's first chair. Kinder was the person responsible for setting the company's course years before he left Enron.

The Enron-Kinder Morgan History of Tax Avoidance

Beginning in 1995, Enron began to engage in a series of transactions that, according to the U.S. Joint Staff Committee on Taxation (page 109) were designed to "satisfy the literal requirements of the corporate tax laws, yet produce results that were not contemplated by Congress and not warranted from a tax policy perspective. Several of the projects were structured to duplicate and accelerate tax deductions."

The first of these transactions was called Project Tanya. It was based on duplicating deductions between Enron companies — effectively claiming the same loss twice. Project Tanya resulted in federal tax savings of $66 million. The U.S. Joint Committee on Taxation report (page 119) explained that as director, president and COO, Richard Kinder was instrumental in delivering this strategy for Enron board approval.

On February 14, 1997, Kinder and William Morgan acquired Enron Liquids Pipeline, L.P. from Enron Corp. by buying the wholly owned general partner, Enron Liquids Pipeline Co. Acquiring the MLP and the general partner was hardly an arms-length deal — Kinder continued to receive a paycheque from Enron until the day after he took over the company. Morgan, also a former employee of Enron, had been on the board of the general partner since 1994.

With assets from Enron acquired to establish Kinder Morgan Energy Partners L.P., Kinder and Morgan created their own board of directors and executive team for the general partner. The roster was heavily weighted with Enron insiders. Out of the nine original directors and officers, six were Enron employees and a seventh member of the team, Michael Morgan, was William Morgan's son. The treasurer and secretary of Kinder Morgan's company was an independent tax and accounting consultant underscoring the entity's continued emphasis on tax planning. Enron Liquids Pipeline Co.'s 141 employees came with the deal at their existing salaries.

Within months of acquiring the corporate entities, Kinder Morgan Energy Partners filed a prospectus with the U.S. Securities and Exchange Commission (SEC) issuing three million units of the MLP to the public. Kinder Morgan's 1997 prospectus — similar to its initial public offering in 1992 — promoted the tax-related properties available to maximize unit holder returns over what they would be if the limited partnership were treated as a corporation for tax purposes.

U.S. Offers Special Subsidy for Resource Companies

The prospectus explained that the U.S. tax code requires publicly traded partnerships be taxed as corporations. However, a "Natural Resource Exception" exists (page 9) if the partnership earns 90 per cent or more of its income from the exploration, development, mining or transportation of any mineral or natural resource, including oil.

The natural resource exclusion means that Kinder Morgan Energy Partners does not face corporate tax at the partnership level. This increases cash flow available for distribution to unit holders, including major unit holders like Kinder, and the general partner, wholly owned by Kinder Morgan Inc. (KMI), again with Kinder a major beneficiary.

Typically, distributable cash flow is paid quarterly and can wind up being treated in the hands of the unit holder as a considerable non-taxable return of capital. Thus Kinder Morgan Energy Partners not only avoids corporate taxes as a "pass through" entity, taxes payable by unit holders are deferred or reduced over what they would be if the unit holder were a shareholder in a publicly traded corporation.

The special tax treatment — the government subsidy — the U.S. affords energy companies that are structured as MLPs is what has enabled Kinder Morgan to grow into the third largest energy company in North America.

A Corporate Makeover To Save $20 billion in Taxes

After 22 years of benefitting from this advantageous tax structure, Kinder Morgan's MLP has matured. Because of a feature called Incentive Distribution Rights, as KMP grows the money available to distribute to its unit holders – its cash distributions — grows, but an increasing share flows through to the general partner. Kinder Morgan Inc. owns the general partner, and as a corporation is required to pay corporate tax on that growing income.

Thus, it's sensible to argue that the successful growth of the MLP means Kinder Morgan should now face an increasing income tax burden. Think of it as reasonable payback to a system that afforded stellar growth because taxes in its formative years were avoided. But instead of treating income taxes as a price for living in a civilized society, Kinder Morgan is relying on its sophisticated corporate structure, a reorganization and accounting savvy to keep its tax payments as low as possible.

Kinder announced last August that his energy empire would undergo a makeover. The restructuring will see Kinder Morgan Inc. purchase the other three publicly traded entities.

The reorganization, by its leader's own reckoning, reduces Kinder Morgan's taxes payable by more than $20 billion over 14 years.

Kinder explained this to investor analysts in a conference call shortly after the announced restructuring. He characterized the deal as a "tax shelter" because the purchase price sets a higher value for the assets than keeping them on the books at their historical depreciated cost. He said, "From the purchase price alone, including the step up, we will realize over 20 billion dollars in cash tax savings over the next 14 years."

Effectively Kinder Morgan Inc. gets to work the intricacies of the accounting system. It will buy assets from its subsidiaries at a premium price and then depreciate these assets as if they were brand new. The deal creates a hefty $1.4 billion in tax savings each year for at least two decades. The market's reaction to the reshuffling of Kinder Morgan's corporate structure is likely why Rich Kinder, Kinder Morgan Inc's largest shareholder, pocketed an extra $800 million the day after the announcement.

None of this is illegal under U.S. law. However, it's fair to conclude what makes a doubling of the growth rate in Kinder Morgan Inc's dividend to its shareholders possible — it's a paper-based consolidation designed to inflate the value of assets and redirect tax revenue that could flow to governments into the pockets of U.S. shareholders instead.

And given the history I've outlined here, it is also fair to say that sophisticated use of corporate structures to minimize tax, maximize distributable cash flow and minimize disclosure and transparency, is key to Kinder Morgan's corporate culture.

Canada is Harder on Tax Avoidance — But Kinder Morgan Found a Way Around That

MLPs do not exist in Canada. Their close cousins — Canadian Income Trusts — lost their special corporate tax privileges with legislative changes brought in by Finance Minister Jim Flaherty in 2006. The changes ensured that all special tax benefits of publicly traded non-real estate related trusts would be removed. Flaherty was concerned about significant tax revenue lost as established businesses in Canada rapidly converted from corporate to trust structures. He called the behaviour a "growing trend to corporate tax avoidance." He said "it's not right and it's not fair."

But Kinder Morgan has shown it knows how to acquire a Canadian firm and absorb it into its U.S. operations, converting it, effectively, into a U.S. MLP.

Remember a company called Terasen? In late 2005, Investment Canada approved the purchase by Kinder Morgan Inc. of the shares of Terasen Inc. — a publicly traded Canadian corporation with its head office in Vancouver — at a steep premium. Terasen held natural gas and oil pipeline assets, including the Trans Mountain Pipeline System.

Kinder Morgan delisted Terasen from the Toronto Stock Exchange. Despite what the company says in its promotional literature that Trans Mountain's expansion means "as Canadians we will have an asset that unlocks access to world markets and continues to support our economy," Trans Mountain is not a Canadian asset benefitting Canadians. Canadians own less than two per cent of Kinder Morgan Energy Partners.

After the purchase of Terasen, Kinder Morgan INc. engaged in a number of inter-company transfers involving many sophisticated entities including an Unlimited Liability Corporation (ULC) registered in Nova Scotia. The Trans Mountain Pipeline assets were eventually sold to Kinder Morgan Energy Partners. In Kinder Morgan's words, they were "dropped down" to the MLP. This is how Trans Mountain came to be under Kinder Morgan Energy Partner's indirect full ownership control by 2007. The Terasen share purchase and related inter-company paperwork effectively turned Trans Mountain into a U.S.-based MLP.

This is but one example of how Kinder Morgan has made an art form out of minimizing taxes in Canada and the U.S. The company has, in Kinder's own words, a "convoluted complicated structure" with more than 250 separate corporate entities. Upwards of 20 are registered in Canada with at least six of them registered as ULCs (page 186).

The ULC is not a very familiar form of incorporation. Only Nova Scotia, Alberta and B.C. allow them. U.S.-based energy sector investors who are expanding into Canada increasingly rely on ULCs. Their unique features enable them to elude a 25 per cent withholding tax rate that would otherwise be applicable under the Canada-U.S. Tax Treaty. In 2009, the Treaty introduced anti-hybrid rules in Art. 4, Sec. 7, which were intended to deny the special treatment, but some companies have developed sophisticated repatriation strategies, so are able to work around the rules.

What Does Kinder Morgan Really Pay in Canadian Taxes? Not Much

I have gone into such detail here to show that fully understanding from a Canadian perspective Kinder Morgan's structure, and tax implications, would demand an expert analyst with all the facts.

However, there is a paucity of publicly available financial information related to Trans Mountain because Kinder Morgan reports on its Canadian operations to the U.S. SEC on a consolidated basis as part of Kinder Morgan Energy Partners. This means there are no separate financial statements filed related to its Canadian activities. This makes evaluation of the company's Canadian operations difficult.

This we do know: Kinder Morgan Canada president Ian Anderson informed analysts in Houston, Texas, last January that the Trans Mountain system received a cash tax refund of $4.2 million in 2013. This even though Trans Mountain generated $167 million in distributable cash flow — net earnings plus non-cash items such as depreciation — available to its U.S. parent.

Anderson's figures also tell us Trans Mountain has contributed combined federal and provincial corporate taxes that averaged a meager $1.5 million over the past five years. Trans Mountain received a tax refund in two of them.

Source: Kinder Morgan Analysts Conference 2013 (page 4) and 2014 (page 3). U.S. dollar figures translated to Canadian using Bank of Canada annual exchange rate.

Trans Mountain files accounting information with the National Energy Board on its regulated assets, which are a subset of its overall activity in Canada. These files reveal that although Trans Mountain earlier told the regulator it would pay $7 million in taxes in 2013, instead its regulated pipeline assets realized a tax refund of more than half a million dollars.

I asked Kinder Morgan to explain the discrepancy between its filing with the NEB, what it tells the Canadian public about its contribution to fiscal revenues and what it tells U.S. investors and analysts. These questions were filed (see pages 30-44) in an information request as part of my right as a qualified intervener in the current hearing. Kinder Morgan refused to answer.

I then asked the NEB to compel answers. Siding with Kinder Morgan, the board denied my request (beginning on page 105).

I believe Canadians are owed an explanation why this U.S. multinational pays so little in Canadian corporate income taxes related to Trans Mountain. The NEB seems content to buy Kinder Morgan's story that it will pay a tax rate of 25 per cent on its net income and that its expanded operation will lead to about $100 million a year in federal and provincial corporate income tax revenue.

Indeed, in arguing for the Trans Mountain expansion Kinder Morgan presents itself to Canadians as a significant tax contributor. Yet Kinder Morgan now repatriates an average of $172 million per year from the Trans Mountain system for distribution to its U.S. based owners, but faces an average cash tax obligation of only $1.5 million in Canada.

Tripling the Financial Drain on Canada's Economy

Bear in mind, too, that Kinder Morgan is Trans Mountain's sole source banker. Without taking you through more arcane financial details, this means the U.S.-based parent company receives high returns on investment locked into toll rates that are approved by the NEB (paragraph 4, page 2).

Kinder Morgan's restructuring will, as a result, mean huge windfall gain for the U.S. multinational on its regulated Canadian pipeline operations, guaranteed by the NEB (paragraph 890-1408).

But that's just for the existing pipeline. Trans Mountain wants to triple its pipeline capacity, and because of economies of scale, will more than triple its financial drain from the Canadian economy. The NEB recently approved much higher tolls charged to Canadian shippers on both the existing pipeline and the proposed twin if the expansion goes through. These tolls reflect a cost of capital well above 12 per cent on $5.4 billion.

Today it costs about $2.75 to ship a barrel of oil to Chevron's Burnaby refinery on the existing Trans Mountain Pipeline. If the expansion goes through, the price to ship that same barrel to Burnaby will be more than $5. Pretty much the same transportation price lift exists for imported refined petroleum products.

Since 90 per cent of the gasoline supplied to the interior and south coast of B.C. comes via Trans Mountain as either crude or refined products, those higher transportation costs are passed onto us. Every time a B.C. resident fills up, it lines Rich Kinder's pockets. If Trans Mountain's expansion is approved, that amount increases substantially.

Kinder Morgan told the NEB during the toll hearings it wouldn't bring the Trans Mountain expansion project forward if it didn't exceed a 12 to 15 per cent rate of return. Meanwhile as Trans Mountain's sole-source banker, it's going to cost Kinder Morgan less than 4.5 per cent to deliver project financing.

If Kinder Morgan's high return on equity in relation to its almost non-existent Canadian tax obligation does not concern the NEB, what remains, I would suggest, is for the federal government to step in and undertake a Canada Revenue Agency audit of all Kinder Morgan activities in Canada, particularly the transactions related to the purchase of Trans Mountain and the complex inter-company transactions that followed.

The CRA would be well advised to include a full examination of the company's complex corporate structure, including its reliance on ULCs. It should include an examination of transfer pricing, particularly of debt and equity sourced by Kinder Morgan's Canadian subsidiaries through their U.S. parent. Canadians deserve the bottom line facts about what benefits flow here, rather than south of the border, as Kinder Morgan proposes expanding its pipeline operations on our soil.

Robyn Allan is an economist and former CEO of ICBC. She is a qualified expert intervener in finance, economics, insurance and public policy at the Trans Mountain Expansion project public hearings. Read more at RobynAllan.com

Photo: Mark Klotz via Flickr

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

Kinder Morgan has launched an advertising campaign pushing the company’s proposed Trans Mountain pipeline expansion that just so happens to coincide with B.C.’s municipal elections — but Elections BC says the company doesn’t need to register as a third-party advertiser.

That’s a bit of a puzzler given that Elections BC rules clearly state that anyone who runs ads on an election issue must register as a third-party advertiser and disclose costs within 90 days of the Nov. 15 election.

Kinder Morgan’s Trans Mountain expansion, which would triple the amount of oilsands bitumen flowing to the B.C. coast, is certainly an election issue, with Burnaby Mayor Derek Corrigan and Vancouver Mayor Gregor Robertson staking out positions against the project.

An online survey for the Burnaby NOW found the pipeline expansion is the No. 1 concern for Burnaby voters during the civic election.

With that in mind, Burnaby-Douglas New Democrat MP Kennedy Stewart asked Elections BC to look into Kinder Morgan’s advertising blitz. The Canadian Press reported that he received a response from Jodi Cook, Elections BC manager of provincial electoral finance, which said that Kinder Morgan’s advertising doesn’t meet the definition of election advertising.

Let’s look at the Elections BC definition of election advertising: “Election advertising is any transmission of a communication to the public during an election proceedings period that directly or indirectly promotes or opposes the election of a candidate or an elector organization. Election advertising includes a communication that takes a position on an issue with which a candidate or an elector organization is associated.” (Emphasis added)

Given that definition, the Dogwood Initiative, a non-profit group that opposes Trans Mountain, felt it needed to register as a third-party advertiser even though the group isn’t endorsing candidates.

“We talked to Elections BC over the summer and determined that even if we make no formal endorsements … the very fact that we are surveying candidates and differentiating candidates on an issue makes this into election advertising,” said Kai Nagata, Dogwood’s energy and democracy director. “We’re tracking the time and money that goes into communications even with our own supporters.”

Elections BC communications manager Don Main told DeSmog Canada that "the [Kinder Morgan] advertising did not appear to implicate, positively or negatively, a candidate or elector organization. The advertising brought to our attention did not tie explicitly or implicitly to the election, and did not serve the primary purpose of supporting or opposing a particular elector organization or candidate."

Nagata notes that Kinder Morgan launched its advertising campaign —which includes leaflets, bus shelter ads, television and online advertisements, robocalls and telephone townhalls — right after the nomination period for the municipal elections closed.

One of Kinder Morgan's television advertisements, which is running during B.C.'s municipal election campaigns.

According to the Elections BC third-party sponsor guide, indications that advertising may qualify as “third party advertising” include advertising specifically planned to coincide with the election proceedings period and a substantial increase in the normal volume of advertising.

“I don’t think you get very far in being a public relations or advertising executive without being able to read a calendar,” Nagata said.

“The impression that is created, especially in the municipalities where this has been an election issue … is that of a targeted ad campaign aiming to sway voters on the merits of a particular project in the middle of a municipal election where candidates have staked their positions on this issue.”

Kinder Morgan has said that the regulatory process is not currently under municipal jurisdiction and therefore can’t be a municipal election issue.

“What that ignores of course is that such a project would have immediate and tangible impacts at a local level,” Nagata said, noting that the Burnaby Fire Department is already having to plan for an oil fire.

After the Elections BC ruling, Stewart submitted additional evidence to Elections BC, alleging Kinder Morgan was focusing advertising efforts against Burnaby Mayor Derek Corrigan, who strongly opposes the pipeline.

Stewart stated in the letter to Nola Western, the deputy chief electoral officer, that Kinder Morgan held a telephone town hall meeting in Burnaby in which 5,000 residents participated.

In a recording of the meeting posted on the project website, Stewart said Kinder Morgan president Ian Anderson describes a plan to offset Mayor Corrigan's "very public media driven campaign against the pipeline."

“Corrigan is disparaged by Anderson, who states opponents are using 'fear and emotion' to sway residents, and that information about the projects is being mischaracterized by the mayor," he said in the letter.

Elections BC responded by saying the town hall meeting has since been removed from the website.

Nagata said Dogwood Initiative could have avoided registering as a third-party advertiser and waited for a complaint to Elections BC to force a ruling on the matter, but “it didn’t even seem like it was an option not to register given the definition as we read it. This [Kinder Morgan] ruling surprised us."

So while voters will someday know how much non-profits like Dogwood Initiative spent during the election, as it stands it will forever remain a mystery how much oil giants like Kinder Morgan have pumped into advertising during this year's municipal campaign. What isn't a mystery is that oil companies certainly have a lot more to spend than organizations working in the public interest.

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